Post 72: An RFI, an exploration of SMEs in Australian and a whinge … all in one.

One of the most consistently astounding things in my work is the fact that the overwhelming majority of vendors I work with do not have a working definition of what constitutes a ‘small business’. Or if they do, they use a definition drawn from their home nations.

This is odd because Australia, as a smaller nation, has smaller small businesses than the US or Europe. And therefore different IT requirements and investment capabilities.

For the record, the Australian Bureau of Statistics definition of a small business is a business with less than twenty employees.

That’s an important piece of data because of the 1,963,907 business the ABS counted as of June 2006, only 785,000 employ anyone. Of those, 472,000 employ 1-4 people and 225,000 employ 4-19 people.

Only about 87,000 businesses employ more than 20 and of those only 5673 employ more than 200. The latter can be discarded as small business.

And most of the vendors I speak to admit that the 1-4s are not small businesses in their definitions. They assume those guys will buy at retail unless they have very particular requirements.

That leaves the other 225,000, plus the 80,000-odd in the 20-200 category up for grabs as small businesses. I include the 20-200s because they are the size of what is considered small in the USA and Europe and therefore where most of the products pitched at ‘small’ business are usually intended to land. Many vendors even describe small to me as anything from 10 to 1000 employees.

That assumption means that most of the vendors I speak to about their small business products assume that their customers have the capacity to run pretty sophisticated IT, either themselves or through a trusted partner. We’re talking client/server and/or ERP style applications, financial dashboards, dedicated storage hardware, mobile computing systems … the list goes on. A 100-person business may have that capability. But a smaller shop?

This makes me wonder how can we figure out which among these 320,000 candidate small businesses have the resources to even contemplate this kind of investment?

Well … another interesting ABS stat is that 93.5% of ALL the businesses the ABS identifies have turnover of less than $2 million a year.

If a business of that size budgets to spend 10% of revenue on IT I would be VERY surprised. Even if they did spend 10% very little of it would go on acquisitions. I know from experience that a significant piece of infrastructure, say a line of business application, will be very hard to get out of, fully implemented, for less than $100,000. So any big IT initiative is at least 5% of most small business’ annual turnover.

Reading this data gives me two concerns:

It is clear that most businesses in Australia (the 93.5% turning over less than $2million ) do not have much money to spend on anything, never mind on IT. So how are IT vendors marketing to those business?

I’m tired of vendors saying ‘this is good for small business’ without accompanying this with a working definition of what an Australian small business looks like

And now for the RFI …

I’ve been expressing some of the concerns above for a while. Now, the Australian Financial Review has asked me to write about whether or not vendors do understand the composition of the Australian market and how they target it based on that understanding. Or lack thereof. If you work for, or represent, a vendor I would love to hear your thoughts on this post, the size and capabilities of the local SME market and how you work with them.